Abuja, Nigeria – In a significant move to alleviate the tax burden on businesses, the Federal Government has approved the exemption of small businesses, manufacturers, and farmers from paying withholding tax. This decision is part of a broader effort to introduce key changes to the existing tax regime, including the reduction of rates for businesses with low margins and measures to curb tax evasion.
The announcement was made by Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, on his official X handle on Tuesday morning. According to Oyedele, President Bola Tinubu has approved the new withholding tax regime, with the official gazette expected to be signed in the coming days.
Oyedele highlighted the challenges associated with the previous withholding tax system, which was introduced in 1978. Over the years, the system has faced issues such as ambiguity due to the increase in covered transactions, multiple taxes, inequity, and straining the working capital of businesses with low margins.
Withholding tax is a method of collecting income tax in advance, deducted at rates ranging from 5 percent to 10 percent based on the transaction. Returns are due by the 21st of the following month, with penalties for late filing set at N25,000 for the first month and N5,000 for each subsequent month of non-compliance.
The key changes introduced to the new withholding tax regime include:
- Exemption of small businesses from withholding tax compliance.
- Reduced rates for businesses with low margins.
- Measures to curb evasion and minimize tax avoidance.
- Clarity on the timing of deductions and key terms.
Oyedele explained, “Withholding tax was introduced into the Nigeria tax system in 1977 to serve as an advance payment of income tax on specified transactions. As the regime expanded over time to cover more transactions, various ambiguities and complications crept in. This resulted in many businesses, especially SMEs, being exposed to excessive burdens of compliance and a strain on the working capital of low-margin businesses.”
He added, “As part of the ongoing fiscal policy and tax reforms, a new withholding tax regime has been approved. The key changes introduced are to address the identified challenges and specifically include the exemption of small businesses from withholding tax compliance and reduced rates for businesses with low margins. Exemptions for manufacturers and producers such as farmers, measures to curb evasion, and minimize tax avoidance are also included.”
The latest approval marks the second of five planned executive orders aimed at reducing inflation and growing tax revenue. The government’s actions are expected to provide much-needed relief to businesses, promoting economic stability and growth.
